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Category Archives: Sign of the Times
Gut Punches for Healthcare and Hospitals
The healthcare industry is still licking its wounds from $1 trillion in federal funding cuts included in the One Big Beautiful Bill Act (OBBBA) signed into law July 4.
Adding insult to injury, the Center for Medicare and Medicaid services issued a 913-page proposed rule last Tuesday that includes unwelcome changes especially troublesome for hospitals i.e. adoption of site neutral payments, expansion of hospital price transparency requirements, reduction of inpatient-only services, acceleration of hospital 340B discount repayment obligations and more.
The combination of the two is bad news for healthcare overall and hospitals especially: the timing is precarious:
- Economic uncertainty: Economists believe a recession is less likely but uncertainty about tariffs, fear about rising inflation, labor market volatility a housing market slowdown and speculation about interest rates have capital markets anxious. Healthcare is capital intense: the impact of the two in tandem with economic uncertainty is unsettling.
- Consumer spending fragility: Consumer spending is holding steady for the time being but housing equity values are dropping, rents are increasing, student loan obligations suspended during Covid are now re-activated, prices for hospital and physicians are increasing faster than other necessities and inflation ticked up slightly last month. Consumer out-of-pocket spending for healthcare products and services is directly impacted by purchases in every category.
- Heightened payer pressures: Insurers and employers are expecting double-digit increases for premiums and health benefits next year blaming their higher costs on hospitals and drugs, OBBBA-induced insurance coverage lapses and systemic lack of cost-accountability. For insurers, already reeling from 2023-2024 financial reversals, forecasts are dire. Payers will heighten pressure on healthcare providers—especially hospitals and specialists—as a result.
Why healthcare appears to have borne the brunt of the funding cuts in the OBBBA is speculative:
Might a case have been made for cuts in other departments? Might healthcare programs other than Medicaid have been ripe for “waste, fraud and abuse” driven cuts? Might technology-driven administrative costs reductions across the expanse of federal and state government been more effective than DOGE- blunt experimentation?
Healthcare is 18% of the GDP and 28% of total federal spending: that leaves room for cuts in other industries.
Why hospitals, along with nursing homes and public health programs, are likely to bear the lion’s share of OBBBA’ cut fallout and CMS’ proposed rule disruptions is equally vexing. Might the high-profile successes of some not-for-profit hospital operators have drawn attention? Might Congress have been attentive to IRS Form 990 filings for NFP operators and quarterly earnings of investor-owned systems and assume hospital finances are OK? Might advocacy efforts to maintain the status quo with facility fees, 340B drug discounts, executive compensation et al been overshadowed by concerns about consolidation-induced cost increases and disregard for affordability? Hospital emergency rooms in rural and urban communities, nursing homes, public health programs and many physicians will be adversely impacted by the OBBBA cuts: the impact will vary by state. What’s not clear is how much.
My take:
Having read both the OBBBA and CMS proposed rules and observed reactions from industry, two things are clear to me:
The antipathy toward the healthcare industry among the public and in Congress played a key role in passage of the OBBBA and regulatory changes likely to follow.
Polls show three-fourths of likely voters want to see transformational change to healthcare and two-thirds think the industry is more concerned with its profit over their care: these views lend to hostile regulatory changes. The public and the majority of elected officials think the industry prioritizes protection of the status quo over obligations to serve communities and the greater good.
The result: winners and losers in each sector, lack of continuity and interoperability, runaway costs and poor outcomes.
No sector in healthcare stands as the surrogate for the health and wellbeing of the population. There are well-intended players in each sector who seek the moral high ground for healthcare, but their boards and leaders put short-term sustainability above long-term systemness and purpose. That void needs to be filled.
The timing of these changes is predictably political.
Most of the lower-cost initiatives in both the OBBBA changes and CMS proposals carry obligations to commence in 2026—in time for the November 2026 mid-term campaigns. Most of the results, including costs and savings, will not be known before 2028 or after. They’re geared toward voters inclined to think healthcare is systemically fraudulent, wasteful and self-serving.
And they’re just the start: officials across the Departments of Health and Human Services, Justice, Commerce, Labor and Veterans Affairs will add to the lists.
Buckle up.
The Great Flattening
This chart may explain why your boss is taking longer to get back to you lately: They’ve got more underlings to watch over, Axios’ Emily Peck writes from a new analysis.
- Why it matters: Middle managers — i.e., bosses who have bosses — were already quietly going extinct, and now AI may be hastening the process.
By the numbers:
People managers now oversee about twice as many workers as just five years ago.
- There are now nearly six individual contributors per manager at the 8,500 small businesses analyzed in a report by Gusto, which handles payroll for small and medium-sized employers.
- That’s up from a little over three in 2019.
🎨 The big picture:
Big Tech has been shedding middle managers for the past few years, a process that’s been dubbed the Great Flattening.
- Reducing management layers is one of Microsoft’s stated goals in laying off thousands of workers this year as it ramps up its AI strategy.
- Amazon CEO Andy Jassy last year announced an effort to reduce managers (memo).
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The U.S. Anxiety Pandemic
The U.S. bombing of Iran’s nuclear capability is unsettling: whether MAGA or not, hawk or dove, young or old, conservative or liberal, rich or poor—it matters.
Stability at home and abroad is utopian to some but desired by all. Pandemics, mass violence, natural disasters and even election results contribute to instability and lend to insecurity. Operation Midnight Hammer might contribute to the nation’s anxiety—time will tell.
The immediate aftermath of the bunker-bombings in Iran will involve two orchestrated campaigns by government officials:
- The Campaign to Contain Middle East Tension: military, diplomatic and economic levers will be put to the test to limit escalation of the bombing and limit its consequence to the region.
- The Campaign to Win Public Support: issues of consequence like military intervention ultimately depend on public opinion that support laws, funding and subsequent actions taken in response. History teaches and political leaders understand that ‘winning the hearts and minds’ of the public is necessary to success. Predictably, justification for Operation Midnight Hammer will be messaged loudly by supporters and challenged by critics.
For the moment, the news cycle will shift to foreign policy and away from tariffs, inflation, household prices and the “Big Beautiful Budget Bill” which the Senate Republicans hope to bring to the floor this week. News media will speculate about the after-effects of the Israeli-Iran bombing and what role the U.S. plays in an increasingly complicated geopolitical landscape marked by marked by armed conflicts Gaza, Ukraine, Myanmar, Yemen and 26 and other countries.
The attention these get in traditional media and social media channels will exacerbate public anxiety that’s already high: 19% U.S. adults and 40% of the country’s adolescents suffer from anxiety disorder: “a persistent, excessive fear or worry that interferes with daily life and functioning”. But, per the National Institute of Mental Health, fewer than a third suffering from severe anxiety receive professional treatment.
In the public health community, much is known about anxiety: it’s more prevalent among women than men, in minority populations, lower income populations and in the Southeast. It’s significant across all age groups, and at an alarming level among young working-class adults facing unique issues like affordability and job insecurity. And it is stigmatized in certain communities (i.e. certain fundamentalist religious sects, certain ethnic communities) lending to silent suffering and unattended consequences.
My take:
Operation Midnight Hammer came at a time of widespread public anxiety about the economy, tariffs, inflation, costs of living and political division. I will let pundits debate the advisability and timing of the bunker-bombing but I know one thing for sure: mental health issues—including anxiety, mood and substance abuse disorders– deserve more support from policymakers and more attention by the healthcare community.
- The former requires local, state and federal lawmakers to revisit and enforce mental health parity laws already on the books but rarely enforced.
- The latter requires the healthcare community to elevate behavioral health to a national priority alongside obesity, heart disease, cancer and aging to secure the public’s health and avoid unintended consequences of neglect.
Regrettably, the issue is not new. Employers, school systems, religious organizations and local public health agencies have been mental health default safety values to date; extreme have been temporarily shuffled to in hospital emergency rooms most ill-equipped to manage them. But systematic, community-wide, evidence-based help for those in need of mental health remains beyond their reach.
The Trump administration’s healthcare leaders under HHS’ Kennedy and CMS’ Oz espouse the U.S. healthcare system should prioritize chronic disease and preventive health. They believe its proficiency in specialty care is, in part, the result of lucrative incentives that reward providers and their financial backers handsomely in these areas.
In the President’s February 13 Executive Order establishing the Make America Healthy Again Commission, its goal was laid out:
“To fully address the growing health crisis in America, we must re-direct our national focus, in the public and private sectors, toward understanding and drastically lowering chronic disease rates and ending childhood chronic disease. This includes fresh thinking on nutrition, physical activity, healthy lifestyles, over-reliance on medication and treatments, the effects of new technological habits, environmental impacts, and food and drug quality and safety… We must ensure our healthcare system promotes health rather than just managing disease.”
Nothing could be more timely and necessary to the Commission’s work than addressing mass anxiety and mental health as a national priority. And nothing is more urgently needed in communities than mainstreaming anxiety and mental health into the systems of health that accept full risk for whole person health.
PS: Before Operation Midnight Hammer over the weekend, I had prepared today’s report focused on two government reports about the long-term solvency of the Medicaid and Medicare programs. Given the gravity of events in Israel and Iran and other hot spots, and after discussions with my family and friends this weekend, it became clear public anxiety is high.
I am concerned about the future and worry about the health system’s response. It’s composed of good people doing worthwhile work who are worried about the future. I recently spoke to a group on the theme (link below): ‘the future for healthcare is not a repeat of its past.’ That lends to anxiety unless accompanied by a vision for a better future. That’s what all hope for those in Iran, Gaza, Israel and beyond, and for all who serve in our industry.
How Perceptive are You?
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Moodys Downgrades US Credit Rating
https://finance.yahoo.com/news/moodys-downgrades-us-aa1-rating-204908886.html
Moody’s on Friday downgraded its credit rating of the United States by a notch to “Aa1” from “Aaa”, citing rising debt and interest “that are significantly higher than similarly rated sovereigns.”
The rating agency had been the last among major ratings agencies to keep a top, triple-A rating for U.S. sovereign debt, though it had lowered its outlook in late 2023 due to wider fiscal deficit and higher interest payments.
“Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs,” Moody’s said on Friday, as it changed its outlook on the U.S. to “stable” from “negative.”
Since his return to the White House on January 20, President Donald Trump has pledged to balance the U.S. budget while his Treasury Secretary, Scott Bessent, has repeatedly said the current administration aims to lower U.S. government funding costs.
The administration’s mix of revenue-generating tariffs and spending cuts through Elon Musk’s Department of Government Efficiency have highlighted a keen awareness of the risks posed by mounting government debt, which, if unchecked, could trigger a bond market rout and hinder the administration’s ability to pursue its agenda.
The downgrade comes as Trump’s sweeping tax bill failed to clear a key procedural hurdle on Friday, as hardline Republicans demanding deeper spending cuts blocked the measure in a rare political setback for the Republican president in Congress.
“We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” Moody’s said, while forecasting federal debt burden to rise to about 134% of GDP by 2035, compared with 98% in 2024.
The cut follows a downgrade by rival Fitch, which in August 2023 also cut the U.S. sovereign rating by one notch, citing expected fiscal deterioration and repeated down-to-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.
HENRY KOTULA 